Schmidt, Miller Renew Vows on Dollar

By Michael GetlerBy Michael GetlerSeptember 30, 1979

West German Chancellor Helmut Schmidt and top monetary officials in the U.S. and West German governments today pledged allegiance once again to a strong U.S. dollar, but they gave no indication publicly whether any new solution had been found to stop the American currency's slide on foreign money markets.

Schmidt, U.S. Federal Reserve Chairman Paul A. Volcker, Treasury Secretary G. William Miller and top officials of the West German Federal Bank and Finance Ministry emerged after a four-hour meeting and luncheon here but declined to answer reporters' questions about what took place.

A joint press conference scheduled by the two governments was abruptly canceled. Instead, a joint communique was issued in which both governments "reiterated their resolve to combat unwarranted as well as erratic movements in the foreign exchange markets."

The meeting here had been scheduled several weeks in advance and was intended from the start as a consultative session. Yet the renewed heavy pressure on the U.S. currency, which has lost an additional 4 percent of its value against the West German mark in the last 10 days, has focused more intensive public interest on the meeting.

Last November, after lack of confidence in the dollar abroad drove it down to its lowest level ever against the mark, the Carter administration announced a string of measures meant to keep the dollar steady and restore confidence in it. One aspect of the plan included a pledge to intervene massively to support the dollar.

The dollar rallied for a few months, but earlier this year began to slide slowly again and the pace of decline has quickened to the point where it is back just one penny above its lowest fixing of 1.74 marks to the dollar of October 1978.

The reaction of many European monetary traders is that the dollar's weakness will be hard, if not impossible, to cure until U.S. inflation eases and oil imports are further restricted. It also reflects, whether fairly or not, the perception of a decline in confidence in American leadership.

Today, both Miller and Volcker claimed that "a single-digit inflation rate" as well as a surplus in the U.S. overseas trade current account "will be reached in coming months."

The statements suggested that the two governments would continue using the measures agreed upon last November to attack the dollar's immediate problem. Treasury Under Secretary Anthony M. Solomon gave the vaguest of hints that something more may be in the offing when he told journalists "he couldn't go beyond" the official statement "at this point."

The statement said Bonn and Washington "agree on the need for a strong and stable dollar and the need to cooperate toward that end."

"The necessary interventions will be carried out promptly and in close cooperation," the statements said. "The corresponding funds are available," and Volcker and his West German counterpart, outgoing Federal Bank President Otmar Emminger, "reviewed intervention arrangements and will take action to ensure a common approach in all relevant markets," it added.

Last November, a pool of about $28 billion was set up to back the administration's pledge of support. Recently, daily intervention of $20 million by federal banks has kept the dollar from slipping still further.

Despite the slide on the market, there is a widespread view -- expressed recently by West German Finance Minister Hans Matthoefer -- that the dollar is undervalued.

The officials met here on the eve of the 137-nation International Monetary Fund-World Bank joint sessions opening Tuesday in Yugoslavia. Miller and Volcker flew on to Belgrade directly from here.